China steel futures drop on weak demand, high inventory worries

SHANGHAI (Reuters) - Chinese steel futures dropped on Thursday amid worries over weak demand for the metal amid rebar inventories that have hit their highest in nearly five years.

Steel demand typically improves from mid-March in China after a slowdown for the week-long Lunar New Year holiday - also known in China as Spring Festival - with construction projects picking up as temperatures rise.

But the slow recovery of steel demand this year after the holiday and the National People's Congress has raised concerns that demand could remain weak and force traders to sell off their stocks, which would accelerate the fall in prices.

"If demand doesn't pick up over the next two weeks, steel traders may give up resistance and sell off," said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.

Rebar inventories held by traders in big cities rose to 9.79 million tonnes by March 16, the highest since April 2013, industry consultancy Steelhome data showed.

The most active rebar on the Shanghai Futures Exchange fell 0.7 percent at 3,621 yuan ($573) a tonne by the midday break.

Iron ore on the Dalian Commodity Exchange rose 1.6 percent to 470 yuan a tonne.

Coke inched up 0.5 percent to 1,969.5 yuan a tonne. Coking coal slipped 0.5 percent to 1,293.5 yuan.

Iron ore for delivery to China's Qingdao port gained 31 cents to $67.25 a tonne on Wednesday, according to Metal Bulletin.

($1 = 6.3193 Chinese yuan)

(Reporting by Ruby Lian and Josephine Mason; Editing by Tom Hogue)